KEY POINTS:
Fearful senior Fletcher Building staff fretted over the company's move to become the world's biggest laminate board maker and tried unsuccessfully to stop the company buying American giant Formica Corporation.
The Business Herald understands alarm bells were sounded last April over the company's planned Formica purchase.
One insider
close to the US$700 million ($1.28 billion) deal to buy the business was so worried he demanded that a list of questions go to the board over the deal, circumventing those in charge of running the company. A number of people at Fletcher's corporate office in Penrose opposed the deal, the Business Herald understands.
It is understood senior staff complained through an external arbitrator, KPMG, which is used by the company to handle a "fair call" or whistleblower system enabling staff to complain about their bosses or board without the fear of being sacked.
The complaints included a warning that the board had not received a fair and balanced view of issues uncovered during due diligence.
It said the risks of buying Formica might have been understated or glossed over, meaning the value of the target business might have been significantly overstated.
But Fletcher chairman Rod Deane fired off a memo on April 27 last year reassuring senior management all was well, thanking them for their input and saying the purchase would go ahead as planned.
He acknowledged in the internal memo that there had been "fulsome debate with a number of [the] senior management team" over the purchase but that all parts of the Formica deal had been thoroughly aired and discussed.
He reassured those involved that the board was confident about the information it had received on Formica, codenamed Genus until the takeover succeeded.
A month later, Fletcher announced the deal, at the time the biggest by a New Zealand company and hailed as giving Fletcher a truly global laminate business that would increase its geographic and earnings diversity.
But Fletcher has since struck many problems, including the United States mortgage and housing crisis which has driven down demand. There have been difficulties in attempts to get cost savings by shutting a Californian factory and doubling production at Evendale in Ohio, a deal which took longer than expected.
Problems have emerged with poor labour processes which Fletcher revealed in its August annual result presentation along with freight problems due to increased costs. And now Formica's private equity vendors are suing Fletcher for US$21 million in the New York Supreme Court over final payments they claim are due.
Since the Formica purchase, Fletcher's share price has plunged, reflecting the global downturn. Shares closed yesterday at $5.57, down 11c.
Cerberus Capital Management LP and Oaktree Capital Management had bought Formica in 2004, taking it out of Chapter 11 bankruptcy, restructuring it and then selling.
Fletcher staff who opposed the deal now say they take little joy in the situation but they wanted to speak to let people know the deal struck internal opposition.
Jonathan Ling, Fletcher chief executive, yesterday defended the Formica purchase which he said was appraised by about 50 people divided into three independent teams: the due diligence or management group, the executive committee and the board.
He said Fletcher had 18,500 employees but if the whistleblower was not on any of the three teams considering the Formica acquisition, he or she should not have documents about the deal which were highly confidential. The benefit of hindsight was being used to attack the deal, he said.
"If the whistleblower could have pre-icted the market demise, sub-prime crisis and what's happened to equity markets, then they're smarter than six billion other people."
Deane said yesterday that he was in a board meeting and referred inquiries to Philip King, Fletcher's new general manager of investor relations, who said the company remained satisfied with its Formica purchase.
FORMICA
* World's biggest laminate board maker.
* World headquarters in Cincinnati, Ohio.
* 100-year-old business.
* Products in New Zealand for decades.
* Operates in US, Europe and Asia.
* Bought by Fletcher Building in May 2007.
